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Book part
Publication date: 30 June 2004

Philip Bobko and Philip L Roth

Evidence for adverse impact in applied, organizational settings can often depend on application of the “four-fifths rule.” We analyze the arithmetic four-fifths rule, its…

Abstract

Evidence for adverse impact in applied, organizational settings can often depend on application of the “four-fifths rule.” We analyze the arithmetic four-fifths rule, its operationalization, and related statistical tests. We note that the rule has intuitive appeal and has arithmetic directness. On the other hand, the four-fifths rule contains many ambiguities because of the manner in which it is defined, as well as its use in practice. One purpose of this article is to discuss the arithmetic and statistical facets of the definition. A related purpose of this article is to demonstrate where the ambiguities (and possibly unintended consequences) with the four-fifths rule might arise when numerical interpretations are invoked. Implications for future research and academic dialogues are then noted.

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Research in Personnel and Human Resources Management
Type: Book
ISBN: 978-0-76231-103-3

Book part
Publication date: 22 September 2009

Jeffrey J. Reuer

Corporate acquisitions have received less attention than the “make-versus-buy” paradigm problem within transaction cost economics. However, recent research that has been conducted…

Abstract

Corporate acquisitions have received less attention than the “make-versus-buy” paradigm problem within transaction cost economics. However, recent research that has been conducted on acquisitions is a valuable source of ideas that can be put to use in organizational governance studies more broadly. In this paper, I provide a brief review of the M&A literature with the aim of developing two arguments. First, information economics has provided important theoretical underpinnings for this literature and complements transaction cost economics by emphasizing the ex ante exchange hazards that economic actors face. Second, research using information economics offers the potential to enrich the organizational economics research agenda in strategic management and vice versa.

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Economic Institutions of Strategy
Type: Book
ISBN: 978-1-84855-487-0

Book part
Publication date: 1 January 2008

Murat K. Munkin and Pravin K. Trivedi

This paper analyzes the effect of dental insurance on utilization of general dentist services by adult US population aged from 25 to 64 years using the ordered probit model with…

Abstract

This paper analyzes the effect of dental insurance on utilization of general dentist services by adult US population aged from 25 to 64 years using the ordered probit model with endogenous selection. Our econometric framework accommodates endogeneity of insurance and the ordered nature of the measure of dental utilization. The study finds strong evidence of endogeneity of dental insurance to utilization and identifies interesting patterns of nonlinear dependencies between the dental insurance status and individual's age and income. The calculated average treatment effect supports the claim of adverse selection into the treated (insured) state and indicates a strong positive incentives effect of dental insurance.

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Bayesian Econometrics
Type: Book
ISBN: 978-1-84855-308-8

Abstract

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The Theory and Practice of Directors’ Remuneration
Type: Book
ISBN: 978-1-78560-683-0

Book part
Publication date: 15 August 2007

Douglas J. Cumming

U.S. venture capital financings of U.S. entrepreneurial firms with up to 213 observations are consistent with the proposition that convertible preferred equity is the optimal form…

Abstract

U.S. venture capital financings of U.S. entrepreneurial firms with up to 213 observations are consistent with the proposition that convertible preferred equity is the optimal form of venture capital finance. This paper introduces new evidence from 208 U.S. venture capital financings of Canadian entrepreneurial firms. In contrast to U.S. venture capital investments in U.S. entrepreneurial firms, U.S. venture capitalists finance Canadian entrepreneurial firms with a variety of forms of finance. The differences between domestic and international U.S. venture capitalist financing structures are not attributable to differences in the definition of the term ‘venture capital’. The data point to the importance of institutional determinants of venture capitalist capital structures within the U.S. and abroad. Among other things, the data indicate that U.S. venture capitalists often do not choose convertible preferred shares in the absence of tax considerations in favor of that financing vehicle.

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Issues in Corporate Governance and Finance
Type: Book
ISBN: 978-1-84950-461-4

Book part
Publication date: 6 December 2018

Nigel Culkin and Richard Simmons

Abstract

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Tales of Brexits Past and Present
Type: Book
ISBN: 978-1-78769-438-5

Content available
Book part
Publication date: 8 May 2018

Nigel Culkin and Richard Simmons

Abstract

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Mastering Brexits Through The Ages
Type: Book
ISBN: 978-1-78743-897-2

Abstract

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A Postmodern Accounting Theory
Type: Book
ISBN: 978-1-78769-794-2

Book part
Publication date: 6 May 2003

Mohamad Goedono and Heibatollah Sami

Using a laboratory experiment, this study investigates agency theory determinants of managers’ adverse selection in resource allocation and an approach to solve agency problems…

Abstract

Using a laboratory experiment, this study investigates agency theory determinants of managers’ adverse selection in resource allocation and an approach to solve agency problems. The results suggest that agents who experience an incentive to shirk, have private information, and/or face less risky sunk costs exhibit a greater tendency to either choose less profitable projects or continue losing projects. Consistent with agency theory predictions, we also found that the tendency to choose less profitable projects and continue losing projects declined when agents were compensated based on a variable (outcome-based) compensation scheme.

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Advances in Management Accounting
Type: Book
ISBN: 978-1-84950-207-8

Book part
Publication date: 24 October 2019

Tarek Ibrahim Eldomiaty, Panagiotis Andrikopoulos and Mina K. Bishara

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions…

Abstract

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.

Design/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. The data cover quarterly periods from 1989 to 2014. The statistical tests include linearity, fixed, and random effects and normality. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. Standard and proposed proxies of information asymmetry are discussed.

Findings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. A similar picture emerges in the cases of firm size and industry effects. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry).

Originality/Value: This chapter contributes to the related literature in two ways. First, this chapter offers updated empirical evidence on the way that financing, investment, and dividends decisions are made under conditions of favorable and adverse selection. Other related studies deal with each decision separately. Second, the study offers new proxies for measuring information asymmetry in order to reach robust estimates of the effects of financial decisions on growth of the firm under conditions of agency problems.

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